I am a broker in the Southeast region of the country. As a broker one of the most difficult parts of the job is to get owners to understand that the income from mobile homes owned by the park is often not accounted for by prospective buyers, nor banks. Although I am young in the business I have seen parks with park owned homes sell for far more than what most investors would pay. In my opinion cash on cash return is more important than a cap rate and the C on C seen from parks with park owned homes is very strong.
My question is where do you draw the line between between capitalization rates of 12% on parks with a large number of park owned homes? Here is an example of a park I have listed. It is a 49 lot park with 34 park owned units. 15 of the units are double wides that are in fantastic shape. If I am a buyer the first thing I am going to do is sell the mobile homes and turn the operation into lot rental. Judging by the year, model and condition of the double wides I dare to say the collective value of the double wides on average would be $20,000 per (minimum) and the 14 x 70 homes to be worth $5000 (minimum). If I charge a modest down payment of 5-10% to aid the low income tenants then I as the buyer am now holding paper on 34 units and have greatly increased my cash on cash return. Yes there will be those who default and some accounting legwork but to me this is a park that I would pay the 10-12% cap rate. The debt service on the park can almost be paid by the interest earned. To me this is worth paying more and regardless if the park cannot be turned into a 15 or 20 cap… the return on investment is strong enough. Some of you have owned dozens and dozens of parks and know far more than I. I am curious to know your take on this.
Your opinions and experience is greatly appreciated.